In the Specific Factors Model, a 5% Increase in the Price

question 19

Multiple Choice

In the specific factors model, a 5% increase in the price of food accompanied by a 10% increase in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in the welfare of the fixed factor in the production of cloth.

• A) an ambiguous change; an increase; a decrease
• B) a decrease; an ambiguous change; an ambiguous change
• C) an ambiguous change; an ambiguous change; an ambiguous change
• D) an ambiguous change; a decrease; an increase
• E) an increase; a decrease; an increase

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Definitions:

Materials Quantity Variance

This refers to the difference between the expected amount of materials needed for production and the actual amount used, which can impact manufacturing costs.

Predetermined Overhead Rate

A calculated rate used to allocate manufacturing overhead costs to products or job orders, based on a specific activity basis.

Variable Overhead

Costs that fluctuate with the level of production output, such as utilities or materials, unlike fixed overhead costs.

Total Overhead Variance

The difference between the actual overhead costs incurred and the overhead costs that were applied or allocated based on standard costing procedures.